Posts Tagged ‘american opportunity tax grant’

The American Opportunity Credit is one of the best education related tax incentives, and knowing how to use it can save qualifying taxpayers up to $2,500 per year.

Any part or full-time student who attends a postsecondary institution eligible to participate in federal student aid programs (this includes nearly all universities, colleges, and technical schools in the United States) may qualify for the credit. A qualifying student must also have been enrolled in postsecondary courses for fewer than four years prior to any year in which he or she uses the deduction. In other words, students are usually eligible for the credit during their freshman, sophomore, junior, and senior years of undergraduate studies but not during graduate school. Parents may claim an American Opportunity Credit for each dependent child enrolled in a post-secondary institution; however, a student and his or her parents may not claim the credit simultaneously. Additionally, one cannot claim both the American Opportunity Credit and the Hope Credit.

The amount of the rebate is based on the amount a student (or his or her parents) spends on qualifying expenses during a particular year. Qualifying expenses include tuition, fees, and books and supplies necessary for a student’s program of study. The cost of room and board is not considered a qualifying expense. Any expenses paid by a scholarship or grand do not count toward the credit.

The exact amount of the tax credit is given by the following formula: 100% of the first $2,000 in expenses and 25% of the next $2,000. In other words, if a student has $4,000 or more in qualifying expenses in a specific year, he or she may claim the maximum $2,500 tax credit; however, if the student has only $3,000 of qualifying expenses, he or she may only claim a $2,250 credit. Up to 40% of the credit is refundable; thus, if a student needed to pay no income tax and could claim an American Opportunity Credit of $2,000, he or she would receive a refund check for $800.

Cutting through the IRS jargon, the rules for the credit are essentially as follows:

·Almost any student in the first through fourth years of postsecondary education may claim the credit.

·Parents of a dependent student may claim the credit; however, in this scenario, the student cannot also claim it.

·Students may not claim an American Opportunity Credit in addition to a Hope Credit or tuition and fees deduction.

·Costs paid by a scholarship or grant are not considered qualifying expenses.

·Nearly all costs (except cost of living expenses and room and board fees) related to necessary courses are considered qualifying expenses.

Over four years, the American Opportunity Credit could save a student’s family up to $10,000. However, in order to accrue these savings, one must be aware of the credit’s guidelines and keep a record of qualifying expenses. Be sure to look into the proper tax software to help you get the most deductions possible.

The last week has brought about a number of different items of news related to how we pay for college. I just wanted to take this opportunity to summarize some of the key changes:

The Obama administration has made it a priority to increase access to a college education. To date, they have increased the size of the Pell grant, planned to modernize the Perkins Loan program, and offered the American Opportunity Tax Credit, a $2,500 tax credit each year for four years of college. There most recent efforts have been aimed at simplifying the FAFSA. The online FAFSA no has improved programming to make it possible to skip more of the unnecessary questions. They are also working with the IRS to allow students to seemlessly retrieve relevant tax data. This will be available in January of 2010 for students applying for aid for the Spring semester. They hope to expand that program. To read more about the changes, view this post on the Department of Education web page.

Finally, this post on the Choice College Blog talks about how scholarships are becoming more difficult to find. We are currently updating the database of college-based merit scholarships on collegetreasure.com and we have noticed that while some colleges are becoming more generous in these tough times, many colleges are actually reducing the size and number of their scholarships. This as tuition continues to rise, and while this past year it rose at the lowest rate in almost 40 years, it is still outpacing inflation, so you would naturally expect scholarships to increase to cover that increased tuition. There are still opportunities out there, we just recommend that students start looking for them earlier. Now more than every it is critical that you have a financial safety as well as an admissions safety.